After you’ve filed your articles of organization with the California Secretary of State, your LLC will begin its legal life. But there are still other things you need to do to make your LLC fully operational. Just when you thought the work was over, you realize that it isn’t.
Here are the next steps that you need to take after you form your LLC. Some of them are legally required. Others aren’t mandatory, but we still recommend them.
Step 1: Draft and Sign an LLC Operating Agreement
What’s an operating agreement?
Well, it’s a legal document that establishes how your LLC will be run.
It includes:
- How decisions are made
- How money is distributed
- How disputes are resolved
There are lots of details here, so take your time as you draft it and really think about what you put into your operating agreement.
All of the members of your LLC will need to sign the agreement and agree to follow the rules that it contains. If you’re the only member of your LLC you’ll be the only one who needs to sign it and follow it.
An operating agreement isn’t mandatory.
But it’s a great idea to have one in place, even if your LLC only has one member and you’ll be in charge of making all of the decisions.
So why am I doing all this extra work?
Because having a written operating agreement lends credibility to your LLC. It also helps show that your LLC is a legitimate business entity that’s separate from you, not just some sham that’s been created to avoid liability. This is really important for single-member LLCs (SMLLCs) because, without the formality of an agreement, an SMLLC can look like a sole proprietorship, which doesn’t give you liability protection.
Plus, lenders might ask to see an operating agreement before they’ll agree to issue a loan in your LLC’s name. If you’re planning on taking out loans to build your business, an operating agreement will definitely be helpful.
Your operating agreement doesn’t need to be complex or long, especially if you’re an SMLLC.
And while you don’t need to file the agreement with the Secretary of State—or anywhere else, for that matter—you should keep this document with all of your other important LLC files.
To learn more about operating agreements, read our article, LLC Operating Agreements – Why You Should Definitely Have One.
Step 2: Get an EIN
Next, it’s time to get an Employer Identification Number, also known as the EIN.
You should obtain an EIN from the IRS.
This nine-digit number is used by the IRS to identify your LLC and you’ll include it in all of your tax forms and communications with the IRS and the California Franchise Tax Board.
If your SMLLC doesn’t have any employees, a separate EIN is, generally, not required by the IRS. Instead, you can use your personal Social Security number. But it’s still a good idea to get an EIN.
Why is an EIN so important?
First, it helps prove that your LLC is a legal entity that’s separate from you, just like the operating agreement.
Plus, using your EIN rather than your Social Security number is a smart step in avoiding identity theft, which is frighteningly common today.
And, on top of all of that, many banks will actually require an EIN when you’re ready to open up a business bank account in your LLC’s name.
It’s easy and free to get an EIN.
While you can complete an online application on the IRS website, you can also join Collective, which will do all of the work for you.
For additional information, see our article, Freelancer’s Guide to Federal Tax ID (EIN).
Step 3: Get a Business License
Whether or not you’ll need to get a business license for your LLC will depend on where your business is located. If you do need a business license to operate, you can get one from your city or county government.
- Just like an operating agreement and EIN, getting a business license helps prove that your LLC is legitimate.
- A business license helps preserve your limited liability.
- More importantly, if your local government finds out that you failed to get a required license for your business, you could get hit with penalties and fines that cost a lot more than just getting the license in the first place.
Obtaining a local business license is usually simple and straightforward.
The specific details for your particular license will be available from your local government, so some research is required.
Once you know what you need you’ll fill out an application and pay a fee.
You might also need state and federal licenses.
Keep in mind that, in addition to a local business license, you might also need a license or permit from the State of California or even from the federal government.
This will depend on the work that you do. For example, real estate brokers and salespeople must be licensed by the state.
Want more information on business licenses? Check out our article, All You Need to Know About Business Licenses in California.
Step 4: File the Statement of Information
Within 90 days after filing your articles of organization, you’re required to file a Statement of Information or SOI. This is form LLC-12, and it needs to be filed with the California Secretary of State.
Expect to pay a fee of $20 to file it.
What’s the purpose of the SOI?
It’s used to keep your LLC’s contact information up-to-date in the Secretary of State’s records.
What does the SOI need to include?
All you have to provide is your LLC’s address, your registered agent’s name and address, business purpose, and the name and addresses of all your members.
Pro tip: It can be hard to remember to file your SOI. When you join Collective, we’ll make sure you don’t miss any important deadlines for maintaining your LLC.
Step 5: Open a Business Bank Account
We recommend that you open a bank account in your LLC’s name, rather than use your personal bank account for business purposes.
Once again, it boils down to ensuring that your LLC is recognized as a separate, legal entity that’s a legitimate business. Combining your personal funds with your LLC’s funds in a single account is a bad idea.
If you use your personal bank account for business purposes, you might even end up losing the limited liability that you obtained by creating your LLC. You definitely don’t want that!
Setting up a business bank account might seem daunting at first, but you can read through our article, A Comprehensive Guide to Banking for New Business Owners, to learn more.
Step 6: File a Fictitious Name Statement
Did you know that you aren’t required to operate your LLC under the legal name that’s listed in your articles of organization?
It’s true; you can use a different name. This name is referred to as an assumed name, fictitious name, or dba, which stands for “doing business as.”
To operate under a different name than your LLC’s legal name, you have to file a fictitious business name application in the California county where your business is located.
Check your county’s fictitious name records to be absolutely sure that the name you want to use isn’t already taken by another business. Then, file the appropriate form and pay the required fee.
For additional information, check your county’s website for details.
You can also learn more about naming your LLC by reading our article, The Ultimate Guide to Naming an LLC in California.
Maintaining Your LLC Doesn’t Have to Be Complicated
Wow, those are a lot of rules! But try to relax and just take things one step at a time so you don’t become overwhelmed.
Also, know that Collective is here for you to help you through all of the important steps of maintaining your LLC. With the right strategy and the right support, you can rest assured that your LLC will have everything it needs to operate legally and be recognized as the legitimate business that it is.
Stephen has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for small businesses, entrepreneurs, independent contractors, and freelancers. He is the author of over 20 books and hundreds of articles and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Among his books are Deduct It! Lower Your Small Business Taxes, Working with Independent Contractors, and Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Consultants.